Italy: Could it become the Euro Area`s Coming

Before the end of 2012, new worries regarding the financial situation in Italy and its link with political factors surfaced after Prime Minster Mario Monti said he will resign after the Parliamentary approval of 2013 budget, stationing Italy under the microscope once again!

Monti led a technocrat government for nearly 13 months after he was appointed by the Italian President November 2011 following the announcement of Silvio Berlusconi of his resignation on the back of financial and sexual scandals, leaving a heavy legacy saddled with huge debts to Monti. Monti, who has an economic background and experience with the European Commission, decided to adopt serious fiscal policies that managed to make him eligible to win the confidence of many European leaders.



Hence, it is reasonable to see that February`s Parliamentary elections represent a focal point for the future of the debt crisis amid uncertainty who will become Italy`s next premier.

All worries stem from the problem of having a new anti-austerity government that lacks the ability to continue reforms as this would revive the conflict with other European leaders, thereby hammering efforts to contain the three-year-old debt crisis. Hence, concerns are expected to persist till knowing the identity of the new government following February`s elections.

In general, Italy is to face a daunting challenge in 2013 amid the undergoing recession encountering the economy since mid 2011 which is also expected to remain until 2013. Expectations of the Organization for Economic Co-operation and Development (OECD) refer to 2.2% contraction in 2012 followed by another 1% contraction in 2013.



Italy needs to raise as much as 420 billion euros in 2013 as financial requirements through issuing bonds; the task which would be chased by higher yields above sustainable levels if political uncertainty prevailed. The failure of gathering this money may push the government to ask for a bailout which is likely to trigger more concerns.

Monti`s government already raised all its funds for 2012, taking advantage of the stabilization in borrowing costs after the ECB announced a new bond-buying program in September.